Certain Underwriters at Lloyd's, London v. Cohen , 785 F.3d 886 ( 2015 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1227
CERTAIN UNDERWRITERS AT LLOYD’S, LONDON, Subscribing to
Certificate Nos. 1149760, 1149761, and 1149763,
Plaintiff - Appellee,
v.
MAX HARRY COHEN, M.D.; MAX HARRY COHEN, M.D., CHTD.,
Defendants - Appellants.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Jillyn K. Schulze, Magistrate Judge.
(8:13-cv-00311-JKS)
Argued: March 25, 2015 Decided: May 5, 2015
Before MOTZ and GREGORY, Circuit Judges, and Mary G. LEWIS,
United States District Judge for the District of South Carolina,
sitting by designation.
Reversed and remanded by published opinion. Judge Motz wrote
the opinion, in which Judge Gregory and Judge Lewis joined.
ARGUED: Erik David Frye, Upper Marlboro, Maryland, for
Appellants. Neal Richard Novak, NOVAK LAW OFFICES, Chicago,
Illinois, for Appellee. ON BRIEF: Steven E. Leder, Julie Furst
Maloney, LEDER LAW GROUP, PC, Baltimore, Maryland, for Appellee.
DIANA GRIBBON MOTZ, Circuit Judge:
Certain Underwriters at Lloyd’s of London brought this suit
against Dr. Max Harry Cohen, a general surgeon, and Max Harry
Cohen, M.D., Chtd., the corporate entity under which his
practice operated (collectively, “Dr. Cohen”), seeking a
declaration that they properly rescinded his disability
insurance policies. The magistrate judge held that Dr. Cohen
made material misrepresentations on his policy applications and
so granted summary judgment to the Underwriters. For the
reasons that follow, we reverse and remand for further
proceedings consistent with this opinion.
I.
On April 1, 2011, Dr. Cohen submitted several initial
applications for disability insurance to Petersen International
Underwriters, a surplus-lines broker authorized by the
Underwriters to enter into insurance contracts on their behalf.
Each four-page insurance application consists of questions
pertaining to an applicant’s personal, financial, and medical
information.
At issue here are Dr. Cohen’s responses to three of those
questions. When asked “Are you actively at work?,” Dr. Cohen
checked the “Yes” box. In response to the question “Are you
aware of any fact that could change your occupation or financial
2
stability?,” Dr. Cohen checked the “No” box. When asked “Are
you party to any legal proceeding at this time?,” Dr. Cohen
again checked the “No” box. Dr. Cohen signed final applications
with these answers on August 8, 2011, and the policies became
effective on that date.
On April 12, 2011, shortly after submission of his initial
applications and prior to submission of his final applications,
Dr. Cohen signed a Consent Order with the Maryland State Board
of Physicians (the “Board”), which suspended his license to
practice medicine in Maryland. The Consent Order provided that
Dr. Cohen’s suspension would begin on August 2, 2011, and
continue for a period of three months. Dr. Cohen agreed in the
Consent Order to wind down his practice and refer all patients
to other doctors during the three-month period prior to his
suspension, and supply the Board with sixty days’ notice of his
intent to become clinically active following his suspension.
The Consent Order further provided that if Dr. Cohen returned to
active practice, he would be on probation for five years, and
would be supervised for the first year. 1
On September 8, 2011, one month after the disability
policies went into effect, Dr. Cohen sought medical treatment
1
On December 19, 2012, the District of Columbia Board of
Medicine also issued an order placing Dr. Cohen on probation for
five years. It, too, imposed various limitations and
restrictions on his ability to practice medicine.
3
for injuries to his thumb and leg resulting from a fall. Later
that month, Dr. Cohen’s insurance agent provided the
Underwriters with notice of a possible claim. The Underwriters
retained Disability Management Services, Inc. to investigate and
adjust the potential claim. That investigation uncovered the
Consent Order. The Underwriters then notified Dr. Cohen that
they intended to rescind the policies, and issued a check
refunding his premium payments.
Dr. Cohen initiated the policies’ grievance procedures,
under which the rescission was affirmed. He requested an
informal review, and the rescission was again upheld. The
Underwriters, which are incorporated under the laws of England
and Wales, and have their principal places of business in
London, subsequently brought this diversity action against
Dr. Cohen, a Maryland citizen. The Underwriters asserted that
Dr. Cohen made material misrepresentations on his applications
for insurance and sought a declaration that they properly
rescinded his policies. The parties agreed to proceed before a
magistrate judge.
Dr. Cohen filed a motion in limine to exclude all
references to any proceedings, records, files, or orders by the
Board. After a telephonic hearing, the magistrate judge orally
denied the motion, concluding that the Consent Order was
admissible. The parties then filed cross-motions for summary
4
judgment. In a memorandum opinion, the magistrate judge granted
summary judgment to the Underwriters and denied Dr. Cohen’s
cross-motion. The court concluded that the Underwriters validly
rescinded the insurance policies because Dr. Cohen made material
misrepresentations in his applications.
Dr. Cohen timely noted this appeal, challenging both the
magistrate judge’s grant of summary judgment to the Underwriters
and denial of his motion in limine to exclude all references to
the Consent Order.
II.
We first address the court’s grant of summary judgment to
the Underwriters, which we review de novo. Bland v. Roberts,
730 F.3d 368, 373 (4th Cir. 2013). In doing so, we “apply[] the
same legal standards as the district court,” and “view[] all
facts . . . in the light most favorable to the nonmoving party.”
T-Mobile Ne. LLC v. City Council of City of Newport News, Va.,
674 F.3d 380, 385 (4th Cir. 2012) (internal quotations marks and
citation omitted). We can affirm a grant of summary judgment
only where there is “no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”
Young v. United Parcel Serv., Inc., 135 S. Ct. 1338, 1355 (2015)
(citing Fed. R. Civ. P. 56(a)).
5
The Underwriters contend that Dr. Cohen provided materially
false answers to three questions on his policy applications:
“Are you actively at work?” (to which he answered “Yes”); “Are
you aware of any fact that could change your occupation or
financial stability?” (to which he answered “No”); and “Are you
a party to any legal proceeding at this time?” (to which he
answered “No”).
Under Maryland law, which the parties agree applies here, a
material misrepresentation on an insurance policy application
justifies the rescission of a policy issued on the basis of that
application. Stumpf v. State Farm Mut. Auto. Ins. Co., 251 A.2d
362, 367 (Md. 1969). To decide whether an insurer has validly
rescinded a policy, a court must first determine whether the
policyholder made a false statement on the application.
Monumental Life Ins. Co. v. Taylor, 129 A.2d 103, 106 (Md.
1957). If so, a court then considers whether the false
statement was material to the risk assumed by the insurer. Id.
“Ordinarily and generally, whether a representation is true or
false, or material to the risk, is for the jury to determine,”
but when the insurer demonstrates falsity and materiality “by
uncontradicted or clear and convincing evidence[,] the question
may be one of law.” Id. at 106-07 (internal quotation marks and
citations omitted).
6
Insurance policies, like other contracts, must be construed
“as a whole to determine the parties’ intention.” Beale v. Am.
Nat’l Lawyers Ins. Reciprocal, 843 A.2d 78, 89 (Md. 2004)
(internal quotation marks and citation omitted). A court will
“examine the character of the contract, its purpose, and the
facts and circumstances of the parties at the time of
execution.” Pac. Indem. Co. v. Interstate Fire & Cas. Co., 488
A.2d 486, 488 (Md. 1985). Policy terms are given “their
ordinary and accepted meanings,” and “[t]he test is what meaning
a reasonably prudent layperson would attach to the term.” Id.
Policy language is ambiguous if it is “general” and “suggest[s]
two meanings to a reasonably prudent layperson.” Id. at 489
(internal quotation marks and citation omitted).
Applying these principles, 2 we can only conclude that each
of the questions to which Dr. Cohen allegedly gave false answers
is subject to more than one reasonable interpretation, and so is
ambiguous. First, the question “[a]re you actively at work?” is
ambiguous because there are several possible interpretations of
what it means to be “actively at work.” The Underwriters
2
The parties do not dispute that the same rules apply to
ambiguities in a policy application, like that at issue here,
prepared by an insurer and made part of the insurance contract.
Peoples Life Ins. Co. v. Jerrell, 318 A.2d 519, 522 (Md. 1974).
Each policy certificate sent to Dr. Cohen specified that “[t]his
certificate” and “any attached endorsements or other papers make
up the entire contract,” and Dr. Cohen’s policy application was
attached to each certificate.
7
contend that by answering “Yes,” Dr. Cohen represented that he
was “perform[ing] surgery on a daily basis when he was, in fact,
prohibited from performing surgery.” Appellees’ Br. 26.
Dr. Cohen’s interpretation is more expansive. He maintains that
he was “actively at work” during the suspension both because he
was a licensed surgeon in the District of Columbia, and because
he continued to perform various duties related to his Maryland
practice, including administrative work, research, and
professional development. He asserts that, during his
suspension, he often arrived home from being “at work” in the
office after midnight.
Neither of these interpretations is unreasonable; both find
support in the insurance policies. As the Underwriters point
out, on another portion of the application, Dr. Cohen indicated
that his occupation was “surgeon” and his “daily duties” were
“surgery,” possibly suggesting that this was his only “work” --
“work” he lacked the authority to perform in Maryland during his
suspension. Maybe so. But the application does not define the
phrase “actively at work,” does not limit its inquiry to
Maryland work, and does not provide that being “actively at
work” requires performance of the specific “daily duties” an
applicant may have listed in the limited space available for
that response.
8
The second question to which the magistrate judge found
Dr. Cohen had provided a false response -- “[a]re you aware of
any fact that could change your occupation or financial
stability?” -- is also ambiguous. The Underwriters contend that
“financial stability” refers to an applicant’s active income,
not net worth, since disability insurance protects only active
income. Because Dr. Cohen was suspended from performing his
daily duties of “surgery” in Maryland, according to the
Underwriters, he was no longer a “surgeon” and so lacked “active
income.”
As Dr. Cohen notes, however, his Maryland suspension was
temporary, and because he could still practice in the District
of Columbia while suspended in Maryland, his “occupation” as a
“surgeon” was not in danger of changing. Furthermore, the
application does not define “financial stability,” or provide
any guidance on how an applicant would determine whether his
financial stability could “change.” “Financial stability” is a
broad term that could refer to net worth and the record
indicates that Dr. Cohen’s net worth apparently increased during
his suspension.
Finally, the Underwriters maintain Dr. Cohen’s answer of
“No” to a third question -- “[A]re you a party to any legal
proceeding at this time?” -- was also materially false. The
magistrate judge did not address whether Dr. Cohen falsely
9
answered this question because the judge concluded that the
question was ambiguous. We agree. The application does not
define “legal proceeding.” And although each party cites to
authority supporting its position as to whether the Board
proceeding is or is not a “legal proceeding,” the standard is
“what meaning a reasonably prudent layperson would attach to the
term.” Pac. Indem. Co., 488 A.2d at 488.
The Underwriters note that in executing the Consent Order,
Dr. Cohen acknowledged representation by counsel and the “legal
authority and jurisdiction of the Board.” Moreover, the Consent
Order seems, on its face, to be a legal document because it
contains findings of fact and conclusions of law. But the Board
proceeding did not involve a court, and a person subject to a
Board proceeding might well conclude, as Dr. Cohen asserts he
did, that by agreeing to the suspension of his medical license,
he would avoid a legal proceeding. Furthermore, at the time
Dr. Cohen submitted his final application, the Board proceeding
was over: he was not then a party to a Board proceeding, legal
or not, at that time. Thus, this question, too, is susceptible
to several interpretations.
In sum, the language of each question at issue here is
ambiguous. Each of these general questions contains undefined
terms susceptible to more than one reasonable interpretation,
making them ill-suited to elicit the specific type of
10
information the Underwriters claim to have requested. The Court
of Appeals of Maryland has repeatedly made clear that an
insurance application, as “a condition precedent” to an
insurer’s reliance on it, “must be reasonably designed to elicit
from [the applicant] the information which he possesses,
material to the risk.” Stumpf, 251 A.2d at 367; see also
Jerrell, 318 A.2d at 522 (noting same).
Because of the ambiguity in the language of the policy
application, we conclude that summary judgment was
inappropriate. We therefore reverse the grant of summary
judgment to the Underwriters and remand the case to the district
court. On remand, the court may consider whether extrinsic or
parol evidence can cure the ambiguity. Cheney v. Bell Nat’l
Life Ins. Co., 556 A.2d 1135, 1138 (Md. 1989) (“[i]n the event
of an ambiguity . . . extrinsic and parol evidence may be
considered”). If the court determines, based on such evidence,
that the language is unambiguous and that Dr. Cohen made
misrepresentations, it must then assess whether such
misrepresentations were material. We express no opinion on that
question. If, on the other hand, extrinsic evidence does not
cure the ambiguity, that ambiguity must be construed against the
insurer as the drafter of the instrument. Id. at 1138. We note
that it is of course within the court’s discretion, on remand,
11
to conduct any further proceedings that it finds appropriate,
including further consideration of summary judgment.
III.
On remand, the district court will have the renewed
opportunity to consider evidence of alleged material
misrepresentations by Dr. Cohen. Thus, we turn to the
magistrate judge’s denial of Dr. Cohen’s motion in limine. The
judge concluded that the Consent Order suspending Dr. Cohen’s
Maryland medical license was admissible in this case. Dr. Cohen
contends that this conclusion is contrary to Maryland law, which
requires express consent of all parties before such an Order can
be admitted in any civil proceeding.
Generally, “[w]e review rulings concerning the admission of
evidence for abuse of discretion.” United States v. White, 405
F.3d 208, 212 (4th Cir. 2005). However, because the magistrate
judge based her decision to admit the Consent Order on a
question of statutory construction, we review her interpretation
of the statute de novo. Clark v. Absolute Collection Serv.,
Inc., 741 F.3d 487, 489 (4th Cir. 2014) (per curiam).
Whether a consent order rendered by the Maryland State
Board of Physicians is admissible in a case like this one is an
issue of first impression. In this diversity case, we consider
this question “as the state court would do if confronted with
12
the same fact pattern.” Roe v. Doe, 28 F.3d 404, 407 (4th Cir.
1994). Accordingly, we begin by examining the language of the
statute. Jones v. State, 647 A.2d 1204, 1206 (Md. 1994). Under
Maryland law, as elsewhere, “[i]f the words of the statute,
construed according to their common and everyday meaning, are
clear and unambiguous and express a plain meaning, [a court
must] give effect to the statute as it is written.” Id. at
1206-07.
Title 14 of the Maryland Code, Health Occupations Article
establishes the State Board of Physicians as a state agency with
the authority to license, investigate, and discipline physicians
and other health care providers. Md. Code Ann., Health Occ.
§ 14-201 et seq. (2014); What is the Maryland Board of
Physicians?, Department of Health and Mental Hygiene: Maryland
Board of Physicians (last visited Apr. 20, 2015),
http://www.mbp.state.md.us/pages/whatis.html. The provision in
question here, Health Occupations § 14-410, states:
(a) Except by the express stipulation and consent of
all parties to a proceeding before the Board, a
disciplinary panel, or any of its other investigatory
bodies, in a civil or criminal action:
(1) The proceedings, records, or files of the
Board, a disciplinary panel, or any of its other
investigatory bodies are not discoverable and are
not admissible in evidence; and
(2) Any order passed by the Board or disciplinary
panel is not admissible in evidence.
(b) This section does not apply to a civil action
brought by a party to a proceeding before the Board or
13
disciplinary panel who claims to be aggrieved by the
decision of the Board. 3
The plain language of this statute bars the admission of “any
order” of the Board in “a civil or criminal action” except by
consent, or when “a party to a proceeding before the Board”
brings a civil action, claiming to be “aggrieved by a decision
of the Board.” Id. There is nothing in § 14-410, or in any
other portion of the statute, indicating that this admissibility
bar applies only in malpractice actions, or that there is an
exception for insurance coverage matters. Thus, solely by the
“express stipulation and consent of all parties to a proceeding
before the Board” can a Board order be admitted into evidence in
a civil proceeding like this one. Id. There was no consent
here.
Moreover, the legislative history of § 14-410 indicates
that the General Assembly intended the provision to be a
straightforward bar to the admission of all Board orders, except
with express consent of all parties to the underlying Board
proceeding. The predecessor to § 14-410 was § 130(q) of Article
43 of the Maryland Code. The legislature added § 130(q) to
Article 43 for the express “purpose of prohibiting the admission
of certain records of the [Board] into evidence in any civil or
3
The Underwriters do not contend that the sole statutory
exception contained in § 14-410(b) applies here.
14
criminal proceeding, with certain exceptions.” 1976 Md. Laws
1599 (emphasis added). 4 In Unnamed Physician v. Commission on
Medical Discipline, the Court of Appeals of Maryland noted that
§ 130(q) did just that: it “forbids the record of [Board]
proceedings to be admitted into evidence in any proceeding,
civil or criminal, except by the express consent of the
parties.” 400 A.2d 396, 397 (Md. 1979).
Nor, contrary to the Underwriters’ contention, does the
fact that the Consent Order is public somehow render it
admissible in a judicial proceeding. The Consent Order states
on its face that it “shall be a public document” under the
Maryland Public Information Act. See Public Information Act,
Md. Code Ann., Gen. Prov. §§ 4-101 - 4-601 (2014). That statute
“allows generally for the inspection and receipt of copies of
public records.” Waterkeeper Alliance, Inc. v. Md. Dep’t of
4
Section 130(q) provided, in relevant part:
The records of any proceeding before the [Board] or of
any of its investigatory bodies or any order passed by
the [Board] may not be admitted into evidence in any
proceeding, civil or criminal, except by the express
stipulation and consent of all parties to the
proceeding.
1976 Md. Laws 1599.
15
Agric., 96 A.3d 105, 108 (Md. 2014). 5 Each disciplinary order is
also publicly available on the Internet. See Md. Code Ann.,
Health Occ. §§ 14-411.1(b)-(d)(2) (requiring the Board to
“create and maintain a public individual profile” on each
licensed physician, available to the public on the Internet,
which includes “[a] description of any disciplinary action taken
by the Board . . . within the most recent 10-year period” and
“includes a copy of the public order”). But nothing in either
the Public Information Act or Title 14 of the Health Occupations
Article requires that public documents be admissible in judicial
proceedings.
The Underwriters certainly cite no authority for the
general proposition that a document is admissible solely because
it is public. Nor can they. That a document is public does not
remove it from the purview of the rules of evidence, or a
statute explicitly governing its admissibility. See The Md.
Inst. for Continuing Prof. Ed. of Lawyers, Inc., Maryland Trial
Judges’ Benchbook, Evidence, § 4-804(g)(1) (1999) (noting that
“[s]ome public records . . . must meet specific statutory
requirements to be admissible”); 10 Eric. C. Surette & Susan L.
5
The Consent Order cited to the 2009 codification of the
Public Information Act. While this appeal was pending, the
Maryland General Assembly recodified the Act at §§ 4-101 – 6-601
of the Code’s General Provisions Article, but made no changes
affecting Board orders being public documents. See 2014 Md.
Laws Ch. 94 (H.B. 270).
16
Thomas, Maryland Law Encyclopedia, Evidence, § 95 (2015) (noting
that the “admissibility of public records is subject to the
general rules of evidence” governing, for example, relevancy,
competency, materiality, and authenticity). And if a document’s
public nature does not render that document automatically
admissible, then the fact that Dr. Cohen agreed to the Order’s
being public does not mean, as the Underwriters assert, that he
“broadly consented” to its admissibility. Appellees’ Br. 16.
In sum, no statutory language or legislative history in
either the Maryland Public Information Act or Title 14 of the
Health Occupations Article or any other Maryland law indicates
that by making Board orders public, the legislature intended to
repeal or otherwise limit the admissibility bar that § 14-410 so
explicitly establishes. See Comm’n on Med. Discipline v.
Bendler, 373 A.2d 1232, 1234 (Md. 1977) (noting that “the law
does not favor repeal by implication.”). It is axiomatic that
“all statutory provisions which relate to the same subject
matter . . . should be construed together and harmonized as far
as possible.” Unnamed Physician, 400 A.2d at 401; see also
Bendler, 373 A.2d at 1234 (noting same). This well-established
approach applies here and thus requires a court to hold that,
while public, Board orders are not admissible in a civil or
criminal action absent consent, except for in an action brought
by a party aggrieved by a Board decision.
17
We note that our conclusion not only comports with the
plain language of the Maryland statutes at issue here and reads
those provisions in harmony -- it also makes good practical
sense. Requiring disciplinary orders to be public gives people
access to essential information about the qualifications of
their physicians. Barring the admission of Board disciplinary
orders in later civil and criminal actions encourages physicians
to cooperate during Board proceedings. Such cooperation
strengthens the Board’s ability to conduct proceedings that are
thorough and fair, and thereby advances the Board’s efforts to
protect the health and safety of the public. 6
IV.
For the foregoing reasons, the judgment of the district
court is reversed and the case is remanded for further
proceedings consistent with this opinion.
REVERSED AND REMANDED
6
If, on remand, the district court determines that
extrinsic evidence submitted by the parties cures the ambiguity
in the policy application questions, the court may also need to
consider whether references to the inadmissible Order or to the
Board’s proceedings against Dr. Cohen are also inadmissible.
Because the court found the Order to be admissible, that
question was neither addressed below nor properly briefed before
us. Thus, we decline to resolve it in the first instance. That
said, if the court concludes that references to the Order are
indeed inadmissible, we believe redaction may be a prudent use
of the district court’s discretion.
18